Greetings, and welcome to Processa Pharmaceuticals third-quarter 2022 earnings call and corporate update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce Jim Stanker, Chief Financial Officer.

Thank you, sir. You may begin..

Thank you. And welcome to Processa's third-quarter 2022 results and clinical update conference call. We are very pleased to have recently reported positive results from our ongoing Phase 1B trial for PCS6422 in GI cancer and from our recently completed Phase 2A trial for PCS12852 in gastroparesis. Dr. Young will discuss these later during the call.

Joining me on the call today are our Chief Executive Officer Dr. David Young; and our Chief Operating Officer, Mike Floyd. Shortly before this call, we filed our September 30, 2022 Form 10-Q. And this morning, issued a press release containing preliminary results from our PCS12852 gastroparesis trial.

I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint slides, please go to the Investor Relations section on our website or our earnings press release and click on the webcast link to follow along. I will start our call by reading the safe harbor statement.

This statement is made pursuant to the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

All statements made on this call, with the exception of the historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934.

Although we believe expectations and assumptions reflected in the forward-looking statements are reasonable, we can make no assurances that such expectations will prove to be correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties.

For a discussion of such risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed on our annual report on Form 10-K. Any forward-looking statements included in this earnings call are made only as of the date of this call.

We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. At this time, I will touch briefly on our published financial results, then turn it over to Dr. Young to provide an update on our drug development activities which will be followed by Q&A.

Our cash balance at September 30, 2022 was $9.1 million. We believe this will be sufficient to complete our three ongoing clinical trials and fund our operations into the third quarter of 2023. During the nine months ended September 30, 2022, we spent cash for our three clinical trials and in our operations of $7.1 million.

This is significantly less than our GAAP net loss of $14.4 million due primarily to the effect of noncash stock-based compensation, application of amounts we had prepaid to our CROs, and amortization. We continue to be focused on conserving our cash and using it to advance the drugs in our pipeline.

One way we are doing this is by having our executive officers invest the majority of their base salary for shares of our common stock. During the nine months ended September 30, 2022, our executives as a group acquired 305,617 shares of our common stock with a fair value of approximately $916,000.

Not only does this conserve precious cash, but it aligns our executive team with our shareholders and provides them with significant potential upside. As I noted, our GAAP net loss for the nine months ended September 30, 2022, was $14.4 million or $0.90 per share compared to a net loss of $8.2 million or $0.54 per share for the same period of 2021.

The increase in our net loss relates primarily to increased clinical trial costs we incurred in our three clinical trials. For the nine months ended September 30, 2022, we incurred $8.3 million in research and development costs, an increase of $3.5 million when compared to the same period of 2021.

We anticipate clinical trial costs will be fairly consistent for the rest of the year as our trials continue, and we fund development activities for the other drugs in our pipeline as David will discuss.

During the nine months ended September 30, 2022, our general and administrative expenses totaled $6.1 million compared to $3.4 million for the same period of 2021. The increase related primarily to increases in stock-based compensation costs along with other operating and consulting costs.

We allocated $6.1 million of noncash compensation cost between our R&D and G&A, with the majority being recorded as G&A. Our net cash used in operating activities during the nine months ended September 30, 2022, increased by $1.1 million to $7.1 million compared to $6 million for the same period in 2021.

As of September 30, 2022, we had 15.9 million common shares outstanding. That concludes my remarks. I'll turn the call over to our CEO, David Young. David, please go ahead..

increase the value of Processa. This concludes my remarks, I will now ask the operator to open the phone lines for Q&A.

Operator, can you please poll for questions?.

And first, earlier, the company received an email asking to explain the significance of the p-value being less than 0.1. I'll now direct this question to the team.

What is the significance of this statistical data?.

Thank you, operator. The p-value is a statistical measure that indicates whether or not the effect of 0.5 milligrams of 12852 in our proof-of-concept trial was significantly different from the placebo. Since it was less than 0.1, what this really means is that less than 10 -- there's a less than a 10% probability that the results occurred by chance.

That means -- again, I'll repeat that, there is less than a 10% probability that the results occurred by chance. The fact that we had a statistical difference at a p-value of less than 0.1 is really good. Remember, this was a proof-of-concept study. It wasn't a study that we wanted to find statistical significance for a large pivotal study.

So instead, what we're looking for in proof-of-concept studies are trends, strong trends. This study wasn't designed for that large study. Instead, what we did is we designed it for that trend. And we saw it.

We only had six patients in the 0.5-milligram group of 12852 and eight patients in the placebo group, a very small number of patients in each group. Yet, we saw that p-value of less than 0.1, which really told us that -- in fact, was less than a 10% probability, that this is by chance. So the probability is this really occurs. Thank you, operator..

Francois Brisebois, Oppenheimer..

Hi. Thanks. Appreciate the color on the p-value there. And then I was just wondering in terms of the DPD inhibition and the length, I think you showed here, one of the slides, 24 hours to 72 hours of irreversible inhibition.

I'm just wondering, what's optimal? What's ideal? How long would you like to see the inhibition? Just any data or thoughts around that?.

Hi, Frank. Good question. So one of the things that we have to remember is that the range of 24 hours to 72 hours is variable. So we had some patients that it was earlier, some patients that was later. And it's not like it's exactly 48 hours. It's not that way. The variation across the patients is wide.

Given that, what we would like to have is we would have to like to have it longer, a little bit longer. Closer to 72 hours would be great for us. If it's not, we just have to figure out how to deal with it in terms of our dosing..

Okay. And then in terms of the Optimus project and going away a little bit from the MTDs, the maximum tolerated doses.

I was just wondering, is that something that in order to find the right dose for the right patient, is that something that could potentially require multiple phases?.

Okay. So we've been using the concept of Project Optimus looking at the dose-response relationship in all other drugs, in all other indications. Cancer is the only one that's not like this.

All other therapies, you say, okay, what's the balance between efficacy and safety? And you're always looking for that regimen that gives you efficacy and safety but the right balance. If you have great efficacy, but you have terrible safety, that's not so good.

If you could decrease the efficacy a little bit, but have no safety issues, that's fantastic. So there's that balance that we're trying to always reach. And we do that with all other indications. This is the one indication we don't do it for. So the question is, do we do multiple Phase 2Bs in other indication? No, we don't typically do that.

Typically, we do one Phase 2B and then we go to Phase 3. So I think -- I believe that cancer is going to be oncology the same way. We're going to be doing -- and our plan is to do one Phase 2B and then go to pivotal trial. And I think that should work out for us..

Okay. Great. And then on the gastroparesis, can you just maybe help us understand the magnitude of the efficacy seen here? Although it was a proof-of-concept, but just the magnitude, in terms of whether or not you have a healthy subject or not a healthy subject.

Is that something that varies a lot once the subjects aren't so healthy?.

Yes, it varies a lot, I mean if the subject has gastroparesis. Even for mild gastroparesis to severe gastroparesis, there is a large difference in terms of gastric emptying rate, a large difference. And so that's why our study, we're looking at more moderate to severe patients, because there's a patients who really need something.

A lot of the mild gastroparesis patients for example, well, yeah, they'll have gastric emptying problems, and they'll have some of the side effects, but they're not extreme. They can deal with it with antacid. They can deal with other things in their diet.

But when you're moderate to severe, your gastric emptying is so slow that all -- the pain is big, the belching could be big. And all these other GI or stomach issues become real, a real problem, because it is so slow. And so that's one reason we targeted that population. They really have an unmet medical need.

Metoclopramide works really well there, but again as I said in the talk, the side effects are just too big. We need something else. If you can only give the drug for 12 weeks, because of the side effects. And potentially the side effects are neurological.

You get tardive dyskinesia, and you can have tardive dyskinesia for the rest of your life for some patients, just because you take this drug. That's not good. We need something better, and that's what we think our drug is..

Okay.

And those side effects, is it the cardiovascular side? Is it the nausea that's especially bad?.

For our drug or for other drugs?.

No. Metoclopramide..

So metoclopramide, it's the tardive dyskinesia. It's the CNS problem. That's what is really bad..

Okay. Okay. Great. And then just lastly, I noticed this wasn't emphasized, because you just had data on other programs, but I just was looking for an update. I think in the deck, I still see that next year, we might see some data on the 499.

So any update there on the difficulty recruiting patients and whatnot?.

Yes. The only thing I can comment right now is that we do expect to have that data in the mid next year for the interim analysis group. And then we hope to be able to enroll all the rest of our patients in the beginning of the year, sometime the first half of the year.

So we'll get the results, the final results for the whole study, near the end of the year. That's what our hope is. We're moving slowly, but we're hoping to do that. We're trying to initiate and push other approaches to recruit patients. Unfortunately, the problem with this is it's a very, very small population.

The patients that we have been getting, coming in, who think they have ulcerative NL, a lot of them do not have ulcerative NL. A lot of them do not have NL, and a lot of them do not have ulcers. They have lesions, not ulcers. So there's a little bit of problem of defining in this population what ulcerative NL is..

Is it more difficult for the patients to know what they have? Or even amongst physicians or derms, they're not sure exactly if it's an ulcer or not?.

No. It's actually very easy for the physicians to know. So when we receive calls from patients who say -- or sites have received calls from patients who say, oh, I want to come in. I have this ulcerative NL. And then when they come in, they don't have an ulcer. Or they don't -- if they do biopsy on the lesion, they don't have NL.

That's what seems to be our problem.

So there's seems to be in the -- among dermatologists and an endocrinologists and other physicians who are diagnosing this for the patient, there seems to be a little bit of disconnect between is it really NL? Is it not NL? Is that really an ulcer or is it an erosion? And that's just unfortunately, miscommunication to the patients about what they really have..

Understood. Okay. Thank you very much..

Naz Rahman, Maxim Group..

Hey, guys. Thanks for taking my question and congrats on all the positive data thus far. I want to talk a little more about the gastroparesis data. So first off just on the symptom measurements we could expect at the end of the year.

Could you just give us more color on what we could expect to see, and what you're hoping to see? Or what you're looking for?.

Sure. Hi, Naz. So what we have -- there is a scale that is an FDA approved, validated scale for gastroparesis that looks at symptoms. And it looks at most of the symptoms that we described in the slide deck. And what we expect to see in the 2A, in our present study, is we expect to see a trend for some of those symptoms.

Now this scale sums all the symptoms, but -- so we will look at all the symptoms cumulatively. But then we'll also look at individual symptoms, right? And we'll see if the cumulative number -- the cumulative evaluation shows a trend towards improvement or its individual symptoms that show a trend.

FDA allows us to move forward in a Phase 3 study and get approval on either the total symptom score or even subcategories of symptoms. So we're looking for both, so that we know exactly where our drug helps in terms of symptomology. It's critical. Remember that FDA only approves a drug based on symptom improvement, not on gastric emptying..

Got it.

So on that point from a regulatory perspective, you do not hypothetically have to show a statistically significant difference on every symptom? You can just show a difference on a composite score, right?.

That's correct. That's correct..

Okay.

So my other question was, over the 20 days, the rate of gastric emptying, did you see the rate of gastric emptying in these patients increase over time? Or did you see like a certain level of emptying, like early in the study were just relatively, let's say, maintained through the 28 days?.

Yeah. We'd actually didn't follow it over time. We actually looked at beginning and end, because we wanted to treat them. So we don't know what happened at time across the days of treatment. We did not study that..

Got it.

Did you see any discontinuation in the study?.

We did. A couple patients did drop out. But they did not drop out because of the side effects. They dropped out because all of a sudden, they said, we can't come in to get our tests done. And so that was unfortunate. But again, it wasn't because of adverse events that they dropped out.

It was purely because they didn't want to travel and to get tests done..

Got it.

And the age you saw in the study, did any of them require any form of intervention to address? Or did they just mostly go away on their own?.

Yes. They went away on their own, and they went away really early on. All the adverse events were mild to moderate type of adverse events. And so there was very little, few things that were happening, nothing that anybody couldn't get through. Nobody dropped out because of those mild to moderate symptoms -- those mild to moderate AEs.

Everybody was fine to continue on except that two patients didn't want to travel anymore. So there wasn't a problem because of that..

Got it. All right. So like gastroparesis is mostly a chronic condition and 20 days off the short study, you're just looking for trends here.

But in your next study, the Phase 2B, what are you thinking in terms of like a timeline? Or how long the study would be? Would that be like over a year, like 52 weeks? Or what are your thoughts around that?.

Yeah. That's a good question. Fortunately, FDA has put out a guidance on gastroparesis. Because there's nothing being developed in gastroparesis specifically or there's nothing approved, I should say, there are a few drugs being worked on, they put out a guidance. So the expectation is that every company follows that guidance.

And that guidance says, you administer the drug at minimally for 12 weeks. Right? So there's minimally a 12-week treatment. You can go longer if you want, but you can't have any less. And then again, you have the symptom score that FDA approved already, that I talked about earlier, but the treatment has to be minimally 12 weeks.

And then again, you can go longer. One of the things we would be going -- we will be going longer in terms of treatment, though, because we need safety data longer than 12 weeks. We need to have one year safety data. So there will be some patients who will go out to a year.

Primary endpoint for the Phase 2B study will be at 12 weeks or 16 weeks or shorter time. But the patients will be going out longer, so we can have larger safety information, more safety information for a longer period of time..

Hey, David. On that 12-week comment, is that because the currently approved drugs, they can't really be used for more than 12 weeks safely or is that --.

That --.

Yeah..

Yeah. Good question. Good question. No, that could be one reason that they're doing it because they know all the data that they have is on metoclopramide for 12 weeks. That's all they have in terms of that's good application status. So that's why we say minimally 12 weeks. I think that is one reason.

I think the other reason, though, is in terms of the long-term effect of the drug on the GI tract, you need to continually give the drug. You need to have more than just the short acute treatment, because this is a chronic disease. Because a lot of the symptoms don't occur right away, but they occur after you've had the condition for a while.

So some patients for example, have gastroparesis, and they'll have one or two symptoms. And then after a year, they'll get a couple more symptoms. So the symptoms don't all come exactly at the beginning. And so I think they want to make sure that you are treating the condition and you're seeing symptoms improvement over time.

We will be looking at symptom improvement over time for that study and expect you expect us to do that. So I think it's one further reason you said, possibly because of metoclopramide 12 weeks. But it's also because they want to make sure that this can be used chronically in the long run..

All right.

And on the patient population itself, could you just quickly remind us, the patient enrolled in this study, were they mostly like diabetic gastroparesis patients? Are they -- or did it also include like post-surgical gastroparesis patients?.

Most of these were diabetic gastroparesis patients. We did have a few idiopathic gastroparesis patients. We did not take surgical gastroparesis patients, because they would have came out of surgery. And we did not want to deal with the side effects that might be going on with post-surgical issues and things like that.

So we did not do any surgical -- take any surgical patients..

Got it. I just have one last question, and it's actually on 3117.

Have you determined like your path forward on this asset? And what are your development plans here?.

We have a couple of roadmaps to go forward on. We are actually getting ready to prepare for -- to request the meeting with the FDA to talk through a few things. And we hope to have that in the beginning of next year, sometime the first half of next year in 2023, so we can define the path.

Part of what we're doing in terms of defining the path is defining really what the target population would be. Should we be using biomarkers? Should we be using -- what kind of dosing regimen? Is it first-line, second-line, or third-line therapy? All these things are being considered that we feel we need to talk to the FDA first.

And so we'll be doing that in the first half of next year..

Got it. Thanks a lot for taking my questions and congrats on all the recent data thus far..

Thanks, Naz..

[Operator Instructions]. [Indiscernible].

Thank you. Again, congratulations, gentlemen. David, just a very quick question.

On the gastroparesis drug, what were your thoughts on the 0.5 milligrams being significant and the 1.0 milligram? Do you have thoughts on that?.

So it's actually 0.5 milligrams and 0.1 milligram?.

Oh, I misread it. My bad..

Yeah. So we did not expect the 0.1 milligram. We thought it was a -- not likely the 0.1 milligram would be good, and we thought the 0.5 milligram. But we wanted to show that we can find a dose that was not effective. And that was why we chose a 0.1 milligram. There's a chance the 0.1 milligram could have been effective.

But again, we didn't think it was going to be as good as the 0.5 milligram. And so that's what we did..

Great. Thank you..

Francois Brisebois, Oppenheimer..

Just on the gastroparesis.

In terms of what you can share, between the 0.5 milligram and 0.1 milligram, just based on that, any thoughts if the safety is better to -- how high can you go here? Is 0.5 milligram probably the max?.

That's a good question. At least from the tox data that we've seen and the other data we've seen in healthy volunteers and constipation patients who've actually received up to 5 milligrams of the drugs, the safety data says 0.5 milligrams and 1.0 milligrams are equally safe, not really much difference, but we could go higher.

We would not want to go to 5 milligrams, 0.5 milligram to 5 milligrams. But we would consider going higher than 0.5 milligram, but not too much higher..

Thank you..

Thank you..

Thank you. And there are no further questions in queue at this time. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation..

Thank you..

Bye..

Good day..